A plain vanilla real estate loan went bad, and the lender called us for help. Back in the good old days of 2007 when property prices were shooting up, lenders needed only to value buildings. If the developer couldn’t pay, the building would generate good cash flow and could be held for income or flipped. Then the crash of 2008 happened, values plunged and this building went bankrupt. Like many lenders, our client had to begin executing on the personal guarantee signed by the developers.
Alleged ponzi schemer Earl Jones is awaiting trial in Montreal on eight charges that he stole from and defrauded investors in Canada of some $50 million. A Canadian accounting firm that examined the books of Jones’s now bankrupt company said that Jones withdrew more than $12 million of client money out for personal use.
Investors in one or many of R. Allen Stanford’s companies may wish they had conducted better due diligence before handing over their money. Stanford and a financial regulator from Antigua are accused in connection with an alleged $7 billion fraud.
While liability is a matter for courts to decide -- not us -- we can say that robust due diligence into Stanford’s web of companies as well as Stanford himself would have produced several pieces of information that might have prompted further investigation before the client committed funds.
Investors in Bernard Madoff’s company now know the expensive truth about due diligence: it’s no different from good investing. It’s hard work. It takes time. Short-cuts and gimmicks often end in tears.
While we do not know how many of Bernard Madoff’s cheated investors conducted any due diligence into his investment business, we do know that the cheap kind of computer check that passes for due diligence today -- costing as little as $500 -- would have turned up no red flags on Madoff.
Our client asked us to profile two exporters he suspected of being front companies for firms subjected to trade restrictions by the U.S. government. Through a combination of public records research and interviews in Asia we were able to prove our client’s hypothesis, complete with on-site photographs and fake invoices provided to our representative in Asia. We then used a special-purpose company posing as an importer to buy and ship to the U.S. a small quantity of the offending goods.
A New York client came to us during a contract dispute with three individuals, two of whom he suspect of being linked to organized crime in Russia. A press and database search revealed no direct evidence of this, but databases did indicate that one of the men had served time in prison two decades before on weapons charges. What did this mean?
We were hired by a large multinational company to find a witness to an industrial accident, but had only his name and a long out-of-service telephone number. With databases we found only one piece of information -- a recent address in a southern state which did not come up on MapQuest or in directory assistance.
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